Question

QUESTION 1 You are given the following information concerning two stocks that make up an index. Price per Share Shares Beginning of Outstanding Year End of Year Kirk, Inc. 34,000 $53.1 $60.4 Picard Co. 32,000 78.5 84.7 a. Assume that you want to build a price-weighted index including the two stocks. Please calculate the beginning index and the end index. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Beginning Index: End Index: b. What is the return for the price-weighted index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Index Return: c. Assume that you want to rebuild a value-weighted index with the index value at the beginning of the year equal to 100. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places. Index Level at the end: d. What is the return of the value-weighted index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Index Retur: e. Assume the value-weighted index has been existing for 28 years and the index level happened to be 1,072.34 at the beginning of the year. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places. Index Level at the end: f. What is the return of this existing value-weighted index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Index Retur:

Answer 1

a & b

Each stock in the index is weighed in proportion to its price per share.

B8 - X r fx =(B7-B6)/B6 1 2 3 Kirk Inc. 4 Picard Co. Shares Outstanding 34000 32000 Beginning 53.1 78.5 Share Price End 60.4 84.7 6 Price Weighted Index Beginnning Value 7 Price Weighted Index Ending Value 8 Index Return of Price Weighted Index =AVERAGE(C3:04) |=AVERAGE(D3:04) =(B7-B6/B6

2 B8 - X fx =(B7-B6)/B6 B C D 1 Share Price Shares Outstanding Beginning End 3 Kirk Inc. 34000 53.1 60.4 4 Picard Co. 32000 78.5 84.7 5 6 Price Weighted Index Beginnning Value 65.8 7 Price Weighted Index Ending Value 72.55 8 Index Return of Price Weighted Index 10.26%

c & d

In a value based index each stock is weighed on their market capitalization.

B11 X ✓ fr =B7/B10 B H. Share Price Ending Value 60.4 84.7 Shares Outstanding 34000 32000 3 Beginning Value 53.1 78.5 Kirk Inc. Picard Co. Beginning Value =B3*C3 =B4-C4 =SUM(F3:F4) Market Capitalization of each stock Ending Value =B3*D3 =B4 D4 =SUM(G3:G4) Weight of each stock Ending Value =G3G5 =G4G5 Beginning Value =F3F5 =F4F5 5 Total Market Capitalization 6 Value Weighted Index Beginnning Value 7 Value Weighted Index Ending Value 8 Index Return of Value Weighted Index 9 Equated Index Value at the beginning 10 Divisor factor 11 Equated Index Value at the end = SUMPRODUCT(C3C4,H3:H4) =SUMPRODUCT(D3:04,13:14) =(B11-B9)/B9 100 | =B6/B9 =B7/B10

B10 - X ✓ fc =B6/B9 ock 1 Share Price Shares Outstanding Beginning V Ending Value 34000 53.1 32000 78.5 84.7 Weight of each stock Beginning Value Ending Value 0.43 0.58 0.57 60.4 Market Capitalization of each stock Beginning Value Ending Value 1805400 2053600 2512000 2710400 4317400 4764000 3 4 0.42 Kirk Inc. Picard Co. Total Market Capitalization 67.88 74.23 9.35% 6 Value Weighted Index Beginnning Value 7 Value Weighted Index Ending Value 8 Index Return of Value Weighted Index 9 Equated Index Value at the beginning 10 Divisor factor 11 Equated Index Value at the end 100 0.681 109.35